As reported in our previous blog, the FSA has been focusing on the application of the Unfair Terms in Consumer Contracts Regulations (the Regulations) to consumer insurance policies and recently issued a statement regarding the use of the phrase "consequential loss" in consumer policy wordings (see: UK: FSA Published Statement Regarding Use of the Term "Consequential Loss"). In light of this, UK Insurance Limited, a member of The Royal Bank of Scotland Group, has given an undertaking to the FSA to cease using the terms of the Royalties Gold Travel Insurance product, which the FSA considers may be unfair (see: Undertaking). In addition, The Royal Bank of Scotland Group has also agreed not to use the term "consequential loss" in other travel insurance contracts it underwrites.
In the FSA's view, a term in a consumer insurance policy that excludes "consequential loss" is not written in plain and intelligible language because it refers to an expression that has a legal meaning. The FSA does not believe that consumers would understand this terminology and that they would not therefore be clear as to the losses which are, and are not, covered by the policy. UK Insurance Limited has now amended its consumer insurance policy terms to set out which losses are, and which are not, covered by the policy. The policy also provides two examples to help consumers understand the position.
The FSA has indicated that all firms, including those which have not given an undertaking or been subject to a court decision in respect of the Regulations, are expected to remain alert to undertakings and court decisions regarding other firms and any implications for their own businesses as part of their overall risk management. It is also important for firms to note that publishing undertakings may attract an increase in consumer complaints both to the FSA and directly to firms, which the publishing firm will need to consider in devising appropriate complaints handling and risk management strategies to deal with that expected increase.
For further information on the application of the Unfair Terms in Consumer Contracts Regulations to consumer insurance policies, please see our previous blog: The FSA Published Two reports relating to the Use of Unfair Terms in Consumer Contracts.